Q1 2020 Earnings Call
And gentlemen, thank you for standing by and welcome to the first quarter 2020 liquidity services earnings Conference call.
This time all participants are no listen only mode. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press Star then girls I would now like the hand, the call for over to your Speaker today, Julie Davis Senior director of Investor Relations. Please go ahead.
Thank you Sonia Hello, and welcome to our first quarter fiscal year 2020 financial results conference call joining us today, our billing Greg.
Our chairman and Chief Executive Officer, and Jorge So, while our executive Vice President and Chief Financial Officer, we will be available for questions. After our prepared remarks.
The following discussion responses to your questions reflect management's views as of today February 620, 20 and will include forward looking statements actually.
Results may differ materially.
Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with that you see including our most recent annual report on form 10-K.
As you listened to today's call. We encourage you to have our press release in front of you which includes our financial results as.
While these metrics my commentary on the quarter.
During this call we will discuss certain non-GAAP financial measures and our press release and our filings with the FCC each of which is posted on our website, you'll find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
We also use certain.
And supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. The supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.
At this time I'd like to turn the presentation over to our CEO Bill and Greg.
Thank you Julie good morning, and walking towards Q1 earnings call I'll review, our Q1 performance and provide an update on key strategic initiatives.
Next Jorge supply out, we'll provide more details on the border and our outlook for Q2.
During our first quarter the majority of our business.
Representing 77% of our total gross profit.
Performed well.
As our retail supply chain group of deals that machine neo segments expanded their share.
Well our capital assets group.
Performed below expectations.
Our our C.G. segment GMB grew.
12%.
Over the prior year period, marking our 10 consecutive quarter.
Double digit year over year GMB growth.
As we continued to deliver significant value to our retail and consumer goods.
Factors.
And buyers.
Our core Gulf deal segment, GMP grew 5% and we signed over 300, New agency clients as we added market share in California, Minnesota, New York, Oregon in Texas.
Our machine you know segment.
New grew 85% over the prior year period, as we continue to expand our data driven solutions for the marketing and sale of industrial equipment, including machine tools construction and agricultural equipment commercial trucks and bio pharma assets.
Okay segment, CMV declined to 36% versus the prior year period was impacted by the wind down or de scrap contract and softness in our energy and industrial verticals in the Americas and Asia Pacific regions.
We recognize the need to improve this area of our business and are working diligently.
I'd like to transform our go to market offering and our CAG segment.
We believe that the CAGR segment will be the first the benefit from our new aggregated marketplace.
And the increasing availability of our self directed solutions for commercial sellers.
We're in the process of migrating more of our existing CAG.
Sellers from our fully managed solutions towards self directed platform solutions and I've had early positive responses customers have greater control and flexibility over the timing of their sales.
Reduced costs and the access to the power of our 3.6 million registered buyers.
We continue to have a strong.
Sales pipeline.
Within our cat business that we expect the transaction during the course of fiscal year 2020.
Many of these.
Simons, our multimillion sales events.
Related to cross border.
Activities of our clients and these projects are more difficult to predict in the near term, which is reflected in our Q2 guidance.
In support of a ride strategy, which is focused on recovery maximization, increasing sales service expansion and expense leverage you have activated the beta version of our new.
Like marketplace.
Which consolidates all asset listings from our AG marketplaces, which includes network international Dot Com and go dumped dot com.
There's no fine by bid on.
Oh assets from our CAG industrial sellers in a single.
The nation marketplace with a superior user experience.
As we complete this marketplace consolidation, we anticipate gaming marketing and operational efficiencies that will enhance the value we deliver for sellers and buyers.
These new capabilities will also help us.
Market and grow our solution as a platform for other players in the value chain or industry verticals, we can grow their own businesses I feel like affiliating with and using.
Our platform and accessing our services and liquidity.
We are excited by the opportunities to leverage the.
The investments we've made in our marketing.
Services marketplace platform data driven.
Diligence tools and domain expertise to grow asset like services with recurring revenue characteristics in multiple verticals.
In multiple geographies.
We anticipate.
It improved gross.
Remainder fiscal year 20.
As a direct result of these investments.
In summary.
Our investments during fiscal year 20 will be guided by the following strategic objectives, one driving higher net recovery through technology and innovation that improves the.
Buyer and seller experience.
To increasing volume by delivering flexible service offerings and pricing models and asset categories with attractive addressable markets.
Three growing services with recurring revenue characteristics that leverage our algae platform domain expertise data and.
Marketplace channels.
And for improving operating expense leverage by controlling costs and through technology and innovation that increases our productivity.
I'll now turn it over to Jorge for more details on the quarter.
Thank you Bill first I will comment on select first quarter fiscal your 20.
20 results, we finished the first quarter fiscal year 2020.
Within the guidance range for all our metrics.
As compared to the first quarter fiscal year, 2019, DMV and adjusted EBITDA were down on lower volumes in our Cogs segment.
Impact of the wind down of our deal the scrap contract.
And planned increases.
In sales and marketing expenses.
Compared to the first quarter fiscal year 2019, GMB declined 6% <unk> revenue was down 8%.
Putting the impact of the wind down of the deal the surplus contract.
First quarter.
GAAP net loss.
<unk> increased 3% a non-GAAP adjusted EBITDAR resulted results declined 29% year over year again, including the results from the deal the scrap contract in the prior year.
In the first quarter, we reported GMB, a hell of a $148.6 million.
Doug deals G.M.B. was up 5% from the first quarter fiscal year 2019, excluding the GMB from the auction deals self directed marketplace last year.
These commercial solar volumes in the auction deals marketplace are now included in the Cogs segment. This year.
Retail supply chain group GMB was up 12%.
Driven mainly by the expansion of the relationships with our current clients and diversification of our seller base.
These improvements were partially offset by 36% year over year decrease in our Cogs segment impacted by the.
Wind down of or do you have these crop contract and slower ramp up of new business.
Including activity in our industrial and energy verticals.
Excluding the impact of the deal the scrap contract. This Cogs segment declined 30%.
We reported first quarter fiscal year 2020 revenue.
Oh $49.5 million.
Deals revenue increased 5% RCG increased 8% and our Cogs <unk> segment decreased 49% compared to the first quarter of fiscal year 2019, including again, the wind down although view of the scrap contract.
Excluding the do you have become.
On chart.
Cogs segment revenue was down 31% compared to the same quarter last year.
Normalizing for the change in auction deals compared to last year Gulf deals was up 6.5%.
Our first quarter fiscal your 2020, GAAP net loss was $5.2 million.
As compared to a loss of $5 million in the first quarter of fiscal year 2019.
Adjusted net loss was $4.1 million, an increase in loss from $3.3 million last year.
Finally, our first quarter adjusted EBITDA was negative $2.1 million that decline from a.
All the same period last year of $1.7 billion.
These declines.
Were impacted by the lower top line activity at our Cogs segment, including the wind down of the deal these crop contract and they plan to increase in sales and marketing expenses to support topline growth going forward.
We continue to have a debt free balance sheet at December 31st 2019, we had a cash on short term investment balance of $49.2 million.
In the first quarter, we incurred 810.5 million dollar.
Increase in cash used in operations compared to the same period last year.
The increase was mainly attributable to hire a year and compensation payments from improved financial performance in fiscal year 2019 compared to fiscal year 2018.
I know payments of seller distributions associated with the completion of the deal these scrap contract.
Sales tax audit settlement and they deposit for a purchase of assets in the industrial sector expected to be sold in the coming quarters.
Are working capital accounts are subject to natural variations, depending on the timing of cash receipts and payments and our fiscal year first quarter tends to be used seasonally low quarter.
Other than the 5 million dollar machinery or acquisition Earnout payment that we will be that will be paid in the second quarter of fiscal year 2020.
We do not currently expect unusual changes in our working capital requirements in this upcoming fiscal year or second quarter.
Looking ahead to the second quarter of fiscal year 2020, or focus remains on growing our commercial in municipal government marketplaces.
Continued technology enhancements and I are the option of our new unified marketplace.
And increase the adoption of our commercial self directed solution.
We expect that are of deals and R.C.G. segments will continue to grow top line G.M. being as we demonstrate the valley, we offer or sellers through higher recovery rates on civil service models.
We anticipate our tags segment will be down from fiscal year.
2019 second quarter.
He also will begin to cross list and cross market auctions.
Across our tag legacy marketplace tunes, and our new unified marketplace.
We believe or mushy Neo segment will continue to grow as we expand their data driven solutions from the marketing and sale of industrial and heavy equipment.
We will continue to expand on our sales capabilities, new unified marketplace data, driven marketing tools and enhance user experience.
Management's guidance for the next fiscal quarter is as follows.
We expect G.M.V. for the.
Second quarter of fiscal year, 2022 range from $145 million to $165 million.
Gap net loss is expected for the second quarter of fiscal year 2020 in the range of a net negative I point 6 million through a negative $2.2 million with a corresponding.
Loss per share.
For the second quarter of fiscal year 2020, ranging from negative 17 cents to a negative seven cents per share.
We estimate nongaap adopted even though the second quarter of fiscal year 2020 for range from a negative $2.5 million to a positive $500000 a non gap.
Just in Los per share is estimated for the second quarter of fiscal year 2020 in the range of negative 13.
A negative four cents.
This guidance assumes that we have alluded weighted average shares outstanding for the quarter of approximately 33.8 million shares.
Thank you and we will now take any questions.
Thank you as a reminder to ask the question you want me to press, Taiwan and your telephone first Shyer question. Please press the pound key I first question comes from College Sebastian appeared alignments that open.
I think you first off bill with the expectation for a return to sequential and your your grows G.M.V.
A year Keith talk about the key factors driving down improvements and I guess part of the same question I guess regarding the slow Downing capital assets, how much visibility do you happen to win the stabilizes and how important is the self directed offering as part of that thanks.
So.
Business seasonally strengthens as we move through the March and June timeframe, I think we have.
Demonstrated that the retail segment has been a consistent.
His strong performer 10 consecutive quarters with double digit G.M.B. growth I think the outlook for the macro environment as favorable that business and you too.
Perform well expand market share and you know the mic shift the online retail is certainly a tailwind for retail.
Regarding the cup deals business.
Another solid quarter of market share expansion with over 300, New agency accounts.
There's been some good work.
Done too.
No refine the sales and account management team and strategy, we've applied a more resources to provide the appropriate coverage of existing territories.
Called his business.
Originated in the South eastern continue to grow up the the the east coast in in the Midwest and those are fairly dense areas, but they offer a lot of opportunity continue to lift more G.M.D. out of existing territory. So we've we've applied better coverage of that more mature market, which should improve our growth rate as we move through fiscal 20.
Equally we've added a capacity to continue to grow.
<unk> enlarge metro's hand in the western United States in Canada.
I think the expansion that we experience in that.
And the current quarters emblematic the that we do signed a caltrans in California, very large transportation network a lot of.
You know high value assets, we expanded in.
New York, Oregon, Texas old, which have some pretty target rich environments for managing equipment and feeding G.M.B. you know marketplace. So I think those are important things.
The other the other thing I would say is that we're adding to the buyer.
I are facing.
<unk> capabilities and.
Rioting no strong participation in our marketplaces by offering a better mobile experience we were at 40, 50% depending on the market place of mobile traffic and we're we're delivering a better.
You know user interface and.
Path to purchase through our mobile responsive design updates so I think that's going to be another.
Positive for improving growth within our Gupp deal segment.
Tag has had history of episodic.
Project, where where the Kate into the timing of those projects is less predictable, we certainly see with <unk> cross border tariffs and trade a lot of.
Realignment activities with our clients you know those are large dollar multimillion dollar projects.
With with more complexity and you know those timing issues.
With regard to visibility yeah. We we have we have good visibility of what's in.
You know the current auction q.
Going about 30 to 45 days out.
Beyond that it's it's much more difficult to predict can you throw in Accra grown a virus issue <unk> in Asia and that affects not only you assets inside of China, but potentially ayers, a willingness to travel and conduct business.
From outside of China.
And so that is something that we just need to continue to monitor but when we look at the full year.
We have a very healthy gag sales pipeline I think what when some of these projects drop because they're they're needle mover type of projects and [noise]. They fall within or you know within the current quarter and the next quarter you know that's.
We're visibility becomes a little bit more difficult with tag.
I think the broader strategy of.
No driving more economies of scale through a unified marketplaces, allowing us to attract more self directed business [noise]. The self directed tool is one where the assets stay in place the client whether it's a corporate clients.
Who traditionally has not used our auction channel corporate clients and now manage the entire process on their own they can control the timing and a methodology of sale, whether it's a internet auction without reserve with the reserve make an offer or a fixed price by now offering.
No not and powers to sellers to bring more of their volume to our platform. This this volume may have circumvented or platform and just spend a negotiated sale with their own buyers. So we've introduced that that's part of a regular.
Discussion, we believe it's good capture a segment of the market, we've traditionally not touch.
For for some of our legacy clients, where we used to do all of the work for these clients many of them are interested in.
<unk> leveraging our marketplace and are willing to do more of that self management and exchange we offer them a more competitive.
Commission rate.
And that's value in exchange in both directions, which we think is also another catalyst for growing our our commercial capital asset clients and market share <unk> will show up and G.M.B.
So just to clarify that the self directed are those typically incremental new clients or reserve conversion from existing client base to the self directed it is it is both it is both and.
We had examples of of clients.
Who would typically ways to do a few large sales with us each year and handle everything else on their own through their own you know dealer network or by or network. Those sellers are now looking at our marketplace using our self directed tool uploading you know their own equipment on a more regular basis. So.
Strategies, helping us.
Create more recurring flow from any of these these clients that have traditionally been.
Only managed service, where we will go into their place of business and do the work for them. So that's the current client base in that transitions underway and nobody gradual Trent.
Formation as we you know.
Evangelize, what we're doing it showcased examples we had a client you know load assets on their own in the U.K. and complete a successful sale you know within a few you within like five or seven business days that type of activity is very exciting for us because it's showing the scale the.
Platform in a different geography, with a a traditional client and wouldn't it ought of us as a global self directed platform. So in many ways <unk> think of as as an ebay for business to business with respect to self directed although we provide.
You know buyer facing customer service, we collect the money, we you know root out and prevent fraud lot of high touch services on the buyer side to protect the self directed sellers.
With regard to new business.
Yeah, we see.
You, some green shoots and the construction vertical and the commercial transportation vertical we've sold at a significant volume construction equipment or our government sellers and it's a natural <unk>.
And and complimentary area for us to bring more commercial volume onto the platform. So I think as we moved through the year, calling you'll see you know updates on how successful we are with the the new clients using our self directed tool in some of these high value of categories like.
Construction equipment agricultural equipment commercial transportation, new light duty trucks heavy duty trucks, because we have a very strong set of buyers for those categories today.
Okay, and then there's a comment around headcount and.
Hiring.
So I guess I'm curious how much of that have you already accomplished and I guess related to that is is you benefit from some of these revenue thailands through the year in thinking about potential for incremental profitability are those additional costs going to be layer it against.
What you have.
And or should we should.
Should we be thinking of that are those that step up as as progressing through the year. Thanks, I think the progression.
Will continue through.
The June Porter are.
Guidance and focus has a business is to leverage you all the things we talked about it in a cheap profitability as we exited the school 20, which is September 30 quarter. So we're very acutely aware of you know driving R.Y. on additional.
Call it investment in the sales function sales process and marketing automation I mean really this is about.
You know covering opportunity with you the appropriate resources from a sales perspective <unk>.
We're creating economies of scale through the unification of our of our market place you know and the sales organization, we have a cheap ill cheap commercial officer driving that process.
The marketing technology stack I think that's another important areas investments for us, it's well underway in use through the.
The June quarter, and that is driving more automation more machine matching of supply with the buyer base.
As we.
Yeah.
No more maturity in those areas I think ultimately we drive efficiencies and you'll have profitability as a very important focus and goal for us as we exits the school 20.
Okay, and then last for me you know five marketplace.
What's the timeframe there with respect to the beta.
And anything <unk> learnings worth pointing out.
And how are you thinking about potential churn rates as as as a legacy capitalized buyers and sellers move over to the to the news site. Thanks sure well.
I think it's a it's a logical place of the business.
You know is evolving to we have you in terms of insights.
Or is.
Over 80% overlap between [noise].
Are guff deals.
Asset categories, and the type of equipment, that's coming through the industrial clients and with such a high degree of overlap you know, there's obviously economies of scale of housing that in a in a single tech platform with the single user experience. So we we believe that on the buyers.
Side they'll be.
Significant not only retention, but opportunity continue to grow and cross fertilize more more equipment more inventory among the the buyer base by having that in a.
A much improved index, a bowl filtering navigation system and recommendation engine type of experience and you know for US. It's it's an obvious lift in terms of recovery rate opportunity you selling items for you know even more money you know allow empire.
Two.
Quickly engage with the supply in the marketplace.
Through a a better mobile experience.
Through better desktop experience and so we think that you know there's gonna be opportunity to further penetrate the buyer base.
By bringing that value on the seller side, you know we have organized the migration and I'm in a manner that you know fairly seamless for the seller community you know the they're continuing to use the same.
Log and tools with the same relationship managers. So it's really about you know continuing to find ways to.
Solve their needs penetrate the.
Available supply, you'll give them and <unk> analytics support think one of the areas that we continue to invest in.
We believe will be highly highly valued as you know more the market marketing.
Analytics round, what's happening not only in our market place, but broadly in the industry verticals be sure and you know with our investment in machine you know yeah. We have a much broader perspective on you know entire industry categories, whether it be construction agriculture.
Farm equipment. So we're.
Very upbeat about how we're going to be able to package and provide you know industry analytics on you know what what assets are worth.
What the cycle time to selling asset is you know allow these these sellers and buyers have insight driven.
Reports and tools now will improve our engagement with these customers.
And.
Propel the type of volume that we can do.
Yeah.
Okay. Thank you very much.
<unk>, Yeah, and this task and clean our question answer session I know like they're trying to call back <unk> frightening quite near Mike.
Thank you for joining our call today, if you have additional questions. Please feel free to reach out that's now can claim that call. Thank you and have a nice afternoon.
Hi, <unk>. Thank you for participating he now disconnect.
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Yeah.
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